§ 3-302. HOLDER IN DUE COURSE. | Uniform Commercial Code | U... https://www.law.cornell.

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LII > Uniform Commercial Code > § 3-302. HOLDER IN DUE COURSE.

§ 3-302. HOLDER IN DUE COURSE.

(a) Subject to subsection (c) and Section 3-106(d), "holder in due course" means the holder
of an instrument if:

(1) the instrument when issued or negotiated to the holder does not bear
such apparent evidence of forgery or alteration or is not otherwise so
irregular or incomplete as to call into question its authenticity; and

(2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without
notice that the instrument is overdue or has been dishonored or that there is
an uncured default with respect to payment of another instrument issued as
part of the same series, (iv) without notice that the instrument contains an
unauthorized signature or has been altered, (v) without notice of any claim to
the instrument described in Section 3-306, and (vi) without notice that any
party has a defense or claim in recoupment described in Section 3-305(a).
(b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not
notice of a defense under subsection (a), but discharge is effective against a person who
became a holder in due course with notice of the discharge. Public filing or recording of a
document does not of itself constitute notice of a defense, claim in recoupment, or claim to the
instrument.

(c) Except to the extent a transferor or predecessor in interest has rights as a holder in due
course, a person does not acquire rights of a holder in due course of an instrument taken (i) by
legal process or by purchase in an execution, bankruptcy, or creditor's sale or similar
proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of
the transferor, or (iii) as the successor in interest to an estate or other organization.

(d) If, under Section 3-303(a)(1), the promise of performance that is the consideration for an
instrument has been partially performed, the holder may assert rights as a holder in due course
of the instrument only to the fraction of the amount payable under the instrument equal to the
value of the partial performance divided by the value of the promised performance.

(e) If (i) the person entitled to enforce an instrument has only a security interest in the
instrument and (ii) the person obliged to pay the instrument has a defense, claim in
recoupment, or claim to the instrument that may be asserted against the person who granted
the security interest, the person entitled to enforce the instrument may assert rights as a
holder in due course only to an amount payable under the instrument which, at the time of

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§ 3-302. HOLDER IN DUE COURSE. | Uniform Commercial Code | U... https://www.law.cornell.edu/ucc/3/3-302

enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

(f) To be effective, notice must be received at a time and in a manner that gives a reasonable
opportunity to act on it.

(g) This section is subject to any law limiting status as a holder in due course in particular
classes of transactions.

‹ § 3-301. PERSON ENTITLED TO ENFORCE INSTRUMENT. up § 3-303. VALUE AND

CONSIDERATION. ›

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